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Tax consequences of employee participation in a seminar abroad

Wednesday, 18 October 2017 18:10
Advice and research -
Taxes

Employees of our company were sent to participate in a foreign paid seminar. The purpose of participation in such an event is the borrowing of advanced experience and improvement of professional knowledge. What tax consequences should be expected by our company?

VAT

The consequences of transactions related to the taxation of value added tax (hereinafter − VAT) depend on the design of services, in particular on what is their subject matter.

According to sub-papa.“б” of para. 185.1 of the Tax Code of Ukraine (hereinafter − TCU), the subject to VAT taxation are the transactions of a tax payer for the supply of services, the place of supply of which is located in the customs territory of Ukraine.

In case of receiving services from a non-resident, it is important to establish a place of delivery. If it is in the territory of Ukraine − it is necessary to accrue tax liabilities on VAT. Otherwise, the subject to taxation will not arise.

Art. 186 of TCU provides for special rules for determining the place of supply. Thus, according to para. 186.2.3 of TCU for the services provided for the placement of paid exhibitions, conferences, training seminars and other similar events, the place of supply is the place of their actual provision. Therefore, since the seminar is carried out outside the customs territory of Ukraine, and, accordingly, the place of supply is there, so the subject to VAT taxation does not arise, therefore, there are no tax liabilities on VAT.

And, for example, for consulting services, the place of supply will be where the recipient of the services is registered as an economic entity (para. 186.3 of TCU). That is, if it is about obtaining consulting services from a non-resident by a resident of the company, the place of supply will be the customs territory of Ukraine. That is, according to the rule of the first event, it is necessary to accrue tax liabilities on VAT, to prepare a tax invoice (if the company is a VAT payer) and to register it in the Unified Register of Tax Invoices. On the basis of the registered tax invoice, it is possible to reflect a tax credit on the date of its preparing (paras. 198.2 and 201.11 of TCU).

Since it is about a seminar (paid seminar), when establishing the place of supply, the special is para. 186.2.3 of TCU, i.e. the place of service provision, and it will not be subject to VAT.

Income tax

Income tax is calculated on the basis of the financial result determined in accordance with the accounting rules, plus/minus the difference, prescribed by the TCU.

TCU does not provide for differences related to participating in a seminar abroad. At the same time, it does not matter what the seminar is − educational or informational consulting.

However, for those companies which use the difference from para. III of TCU, it should be remembered that, when cooperating with non-residents from “offshore” for their purchased services, the 30% difference starts.

It should be recalled: under para. 140.5.4 of TCU financial result before taxation increases by 30% of the value of goods, including non-current assets, works and services purchased from non-residents from countries, the list of which is approved by the Cabinet of Ministers of Ukraine (hereinafter − CMU) (now the list is approved by the order of the CMU, dated September 16, 2015, No. 977-p).

if the transaction is not controlled (according to Art. 39 of TCU), but the company will prove that the price is in line with the arm’s length principle (prepare a package of documents as for controlled one). If, literally, the difference may not apply if “the transaction is not controlled and the amount of such expenses is confirmed by the taxpayer at prices determined by the arm’s length principle in accordance with the procedure established by Article 39 of this Code, but without submission of the report” (para. 4 of sub-para. 140.5.4 of TCU);

under transactions with debt obligations from para. 140.2 (para. 1 of sub-para. 140.5.4 of TCU);

under transactions with royalties from para.140.5.6 of TCU (para.1 of sub-para. 140.5.4 of TCU) (Trans-regional head office of SFSU on maintenance of large payers dated 30.10.2015, No. 24463/10/28-10-06-11).

Thus, if the company applying the difference is provided services for participation in the seminar by a non-resident from a country that has fallen to the list approved by the CMU, it is necessary to increase the accounting financial result by 30% of the cost of such services.

PIT

The cost of participating in a seminar of an employee representing the interests of the company is not included in the taxable income of individuals. It is not a whim of an employee, but an economic necessity − to obtain information and consulting services for the company. Therefore, it is not necessary to keep the personal income tax (hereinafter − PIT) and the war tax from the cost of the seminar.

Fortunately, controllers have the same opinion. However, the non-taxation of the personal income tax the participation of an employee in a seminar, they make dependent upon who has an agreement on the provision of services − with the company or with the individual worker.

Repatriation tax

As a rule, the organizers of the seminars are non-resident legal entities. Accordingly, the question arises, how to withhold the income tax of such non-residents?

First of all, it is necessary to find out whether the fee for the seminar is income from sources of origin from Ukraine. Their list is contained in para. 141.4.1 of TCU. There is no fee for participation in the seminar, as well as there is no fee for informational or consulting services. However, there is remuneration for the conduct of non-residents or their authorized representatives of cultural, educational, religious, sporting, entertainment activities in the territory of Ukraine (para. “ж” in para. 141.4.1 of TCU). However, since the seminar is not an educational service, but also provided by a non-resident not in the territory of Ukraine, in case of transfer to a non-resident legal entity fees for participation in the seminar, the income from sources of origin from Ukraine does not arise (para. “й” of para. 141.4.1 of TCU), so there is no need to withhold the repatriation tax.